Gregg Pearman explores the different VAT treatments given to two apparently similar sports clubs.

When a bowling club and a rugby club both build new clubhouses, the VAT treatment should surely be the same. Well actually no. The recent tribunal decisions in respect of Witney Bowls Club and Caithness Rugby Football Club highlight the complexities (and to the casual observer, the idiocracy) of the VAT regulations.

The courts concluded that Caithness Rugby Football Club was eligible to receive zero-rating on the construction services, whereas Witney Bowls Club was not. The reasons for the different VAT treatments are as follows.

The starting point is to understand when zero-rating is available. In summary, the zero-rating for building services can apply when the building will be used for a “relevant charitable purpose” by a charity (excluding business use), or when it will be used by a charity as a “village hall or similarly in providing social or recreational facilities for a local community”. In both cases, the courts were required to give a view on whether the buildings were similar to a village hall in providing community facilities.

Stumbling block

There was a major stumbling block in the Witney case, as the club is not a registered charity, and was not registered for charitable purposes (it was registered as a community amateur sports club). However, the court did take the opportunity to provide its view on the village-hall issue as part of its judgment. On the face of it, the fact patterns were very similar. Both clubs were controlled by their own committees which promoted their own interests as much as possible (eg the clubs had priority on match days), and to maximise use of the new buildings, and income, the facilities were available for hire when they were not required by the clubs.

In the case of Caithness, HMRC argued that at the time of construction, use by the community was not expected to be significant (the funding applications confirm this point), and therefore the building could not be said to be providing community facilities. However, after the building was completed, the actual community use was significantly higher, and as a result the tribunal disagreed with HMRC and allowed the appeal. In Witney’s case, the tribunal focused on the fact that the club manages its own affairs without involvement from other representatives of the community, and although there is some use of the clubhouse by the wider community, it is primarily used by the club and its members, and so zerorating was not applicable.

So what does that mean for other similar organisations looking to build new facilities? Each case depends on its own fact pattern, but the Caithness decision does seem at odds with the generally accepted view that to qualify as a village hall, the building must be aimed at wider community use and must be controlled by a committee drawn from that community. If there is doubt regarding the VAT treatment, organisations should obtain professional advice.

Gregg Pearman is senior tax manager at BDO